Insightful Investing Newsletter October 2007

We are going through a few changes here at the Insightful Investing Newsletter that should be completed by the end of the year. The most significant change you will see this quarter is the elimination of our Vanguard portfolio. The main reason for this is because its not worth the work. From our experience, Vanguard's actively managed funds do not add much value over their index based funds. That being said, if you have followed our Vanguard suggestions, there is no reason to change the funds you are invested in. What you should do is pay attention to our asset allocations and adjust the amounts you have invested in each fund accordingly. In 2008 you will see more focus on ETFs and less emphasis on Mutual Funds.

3rd Quarter 2007 Market Recap

If you thought the roller coaster ride in the first half of 2007 was fun, you must have enjoyed the 3rd quarter. It was sort of like going on the same ride, but at twice the speed as the stock market experience a similar amount of activity in half the time. The higher volatility was welcomed by traders, but kept investors on the edge of their seats.

The continued subprime mortgage worries and meltdown in the real estate markets inspired the Federal Reserve Open Market Committee to lower short term interest rates for the first time in four years. When you add this to all the turmoil Intermediate Term Bonds with a 2.8% return started looking better than the 0.3% return of High Yield Bonds.

Large Cap Growth continued to outdistance Small Cap Value in the third quarter. The scoreboard showed big guys turning in gains of 4.2% which the little guys last 6.3%. Thats a 10% differential that is certainly helped by the fact that the falling dollar helps those larege companies that do a lot of business overseas, and the financial stocks that are often considered to be 'Value' stocks lost a lot of that in recent months. While REITs continue to trail the pack in 2007, they actually bounced back slights this quarter, but they may only be taking a breather.

3rd Quarter 2007 Fund Review

Intermediate Bond Funds benefited most from the FOMC actions to lower interest rates as both Fidelity Intermediate Government (FSTGX) and Metropolitan West Total Return Bond (MWTRX) picked up 3.1% for the quarter.

Our Kinetics funds continue to do so well that Morningstar has moved them up the ladder in market cap categories. Kinetics Paradigm (WWNPX) was our leading Large Cap Growth Fund with an amazing 10.7% return in the 3rd Quarter. Kinetics Small Cap Opportunity (KSCOX) is getting too big for its britches as its 6.8% return for the quarter, along with its 39.2% return for the past 12 months, have pushed it into the Mid Cap Fund Category. The leading Mid Cap Growth Fund with Wells Fargo Advantage Discovery (STDIX) with a 7.0% gain. Fidelity International Discovery (FIGRX) led the relatively strong International Stock Funds with a return of 5.7% for the quarter.

On the more difficult side of the ledger, there were a few funds had a rougher quarter than the average. RS Value (RSVAX) fell -6.1%, RS Partners (RSPFX) dropped -8.4%, and Northern Small Cap Value (NOSGX) lost -5.0%. These funds, along with a few others were replaced in our recommended list for next quarter.

Best Mutual Funds
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